With reports that the Super Committee has been considering reforms to Social Security, rhetoric from all sides of the issue has been heating up. This past weekend, the Washington Post ran an interesting article on Social Security, its trust fund and funding system, and its future insolvency. As the article notes, 2010 was the first year ever that Social Security took in less revenue than the benefits it paid out, requiring the program to draw down some of its resources and the federal government to borrow additional money to fund the program.
As the article points out, there is still debate in Washington and around the country about how the program impacts the budget. Critics of the view that Social Security is part of the overall budget will argue that yearly shortfalls are not necessarily a bad thing as the program has a $2.5 trillion trust fund to cover any program deficits. But if you consider Social Security as part of the budget, yearly shortfalls threaten to push deficits and public debt even higher.
But as we've argued before in a policy paper earlier this year, no matter how you look at Social Security -- whether as part of a unified federal budget or as a stand-alone program -- it is in dire need of reform for the sake of both beneficiaries and the federal budget. Regardless of whether or not past Social Security surpluses have been "saved" by reducing past deficits or if they led to increased spending or lower taxes, the government will have to increase its borrowing in public credit markets to make good on the trust fund obligations.
According to the latest estimates from the program's own trustees, the trust funds are scheduled to run out in 2036. At that time, only about 78 percent of benefits would be able to be paid, in order for incoming revenues to match outlays, if no changes to the current system are made.
With modest reforms, however, lawmakers could shore up Social Security for the foreseable future. There are a number of ways to fix the program, such as those proposed by the Fiscal Commission and many other bipartisan plans. As Fiscal Commission co-chair Erskine Bowles has said:
The Bowles-Simpson plan would have righted the system’s finances with a combination of payroll tax increases and reductions in scheduled benefits, mainly years down the road. It would have hit upper-income workers while raising benefits for the most needy, those with average lifetime earnings of less than $11,000 a year. “By making these relatively small changes, you make it solvent and you make it be there for people who depend on it,” [Erskine] Bowles said.
To truly get our fiscal house in order, everything has to be part of the solution, including Social Security. Social Security reform can allow us to improve the retirement security of people who truly depend on the program while also helping to get our budget under control. CRFB hopes the Super Committee is able to tackle Social Security reform. The program's future is at stake.